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Balance Of Payments Crises Under Fixed Exchange Rate In Colombia: 1938-1967


  • Fabio Sánchez


  • Andrés Fernández


  • Armando Armenta



Between 1938 and 1967, including the Bretton Woods period after 1947, Colombia pegged its currency to the dollar. Although the exchange rate was fixed, the peso was devaluated more than 12% on six occasions. The devaluation episodes were complex, traumatic, highly politicized and had costly macroeconomic effects. The Bretton Woods agreement stated that countries could only devalue their exchange rate in the presence of fundamental imbalances driven, for example, by structural terms of trade deterioration. However, this paper states that in Colombia, the imbalance in the money market was a key factor in explaining the exchange rate crises during the period. The paper is organized as follows: first, a simple theoretical model of a small open economy with imperfect capital mobility is described in order to examine the possible causes of nominal devaluations; second, a narrative approach is used to describe the economic circumstances that surrounded each of the devaluation episodes; finally, a set of econometric tests are used in order to identify the key variables behind the macroeconomic imbalances that preceded each exchange rate crisis. The results show that the external imbalances were mainly associated with the imbalances in the money market. Terms of trade deterioration account for just a small part of current account crises

Suggested Citation

  • Fabio Sánchez & Andrés Fernández & Armando Armenta, 2006. "Balance Of Payments Crises Under Fixed Exchange Rate In Colombia: 1938-1967," DOCUMENTOS CEDE 002041, UNIVERSIDAD DE LOS ANDES-CEDE.
  • Handle: RePEc:col:000089:002041

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    References listed on IDEAS

    1. Martha Misas Arango & Hugo Liveros Camacho & Jose Dario Uribe Escobar, 1994. "Especificación Y Estabilidad De La Demanda Por Dinero En Colombia," ENSAYOS SOBRE POLÍTICA ECONÓMICA, BANCO DE LA REPÚBLICA - ESPE, vol. 13(25), pages 97-120, June.
    2. Miron, Jeffrey A., 1994. "Empirical methodology in macroeconomics explaining the success of Friedman and Schwartz's 'a monetary history of the United States, 1867-1960'," Journal of Monetary Economics, Elsevier, vol. 34(1), pages 17-25, August.
    3. Fabio Sánchez & Andrés Fernández & Armando Armenta, 2005. "Historia Monetaria De Colombia En El Siglo Xx: Grandes Tendencias Y Episodios Relevantes," DOCUMENTOS CEDE 002792, UNIVERSIDAD DE LOS ANDES-CEDE.
    4. Milton Friedman & Anna J. Schwartz, 1963. "A Monetary History of the United States, 1867–1960," NBER Books, National Bureau of Economic Research, Inc, number frie63-1, January.
    5. Sebastian Edwards & Julio Santaella, 1993. "Devaluation Controversies in the Developing Countries: Lessons from the Bretton Woods Era," NBER Chapters,in: A Retrospective on the Bretton Woods System: Lessons for International Monetary Reform, pages 405-460 National Bureau of Economic Research, Inc.
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    More about this item


    Bretton Woods; Devaluation; Fixed Exchange Rate Regime; Monetary Policy;

    JEL classification:

    • N16 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - Latin America; Caribbean
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook


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